Countdown to consolidation

As the public sector prepares for a period of unprecedented upheaval, mergers of services will be unavoidable. Sue George hears how organisations and managers can best prepare for the many challenges they are facing
A desire to save money in the face of cuts to public sector budgets means mergers are likely Photograph: Getty

Everyone working in the public sector knows these are times of dramatic change. Whether or not their particular area has already undergone reform, there is uncertainty about what will happen over the next months or years.

The scale of change, however, means consolidation and mergers are inevitable.

A recent survey conducted by the Guardian on behalf of Grant Thornton, Implementing Mergers and Consolidation Across the Public Sector, found that while most public managers think that restructuring will make their organisations more efficient, there will also be a very significant impact on their staff – and there is no clear consensus that the hoped-for cost savings will be achieved.

The survey, which gathered the views of 600 directors and senior managers who will have to deliver the reforms set out by central government, was discussed at a recent seminar hosted by the Guardian and sponsored by Grant Thornton.

The speakers and audience were made up of senior managers from a range of public sector bodies and third sector organisations.

Referring to the research, Karl Eddy, public sector partner at Grant Thornton, pointed out that of the senior managers interviewed, 61% considered the biggest challenge for leadership teams to address in undertaking mergers to be cultural differences. He said that 74% of survey respondents identified the implementation of mergers and consolidations as positive and an opportunity to reduce costs. They also saw it as an opportunity to innovate and develop more strategic and smarter systems. "We have to incentivise people in the right way to make the changes required," he said.

"There is a low appetite to learn in public services in general," said Sir David Varney, who oversaw the merger of the Inland Revenue with HM Customs and Excise and also has a background as a consultant in the private sector. "Noble failure is valued," he added. But big changes will happen anyway: "Everybody is going to have to move," he said.

Understanding the challenge

Jaki Salisbury, who oversaw the transformation of Bedfordshire county and district councils into two unitary councils, thought the forthcoming changes would be more striking than could be anticipated. "What we tend to do as human beings is underestimate the size of the task and that goes right through the project team. This is a massive programme. We have to be clear why we are doing it," she said.

This theme was taken up by Robert Creighton, chief executive of Ealing PCT, who has had more than 20 years' experience in different NHS roles: from civil servant in the Department of Health to chief executive of Great Ormond Street. He said: "The drivers of mergers and consolidations that do make sense in the NHS are clinical effectiveness, safety, and financial and business efficiency, especially site consolidation."

Creighton believed that when the issues of efficiency and inefficiency were generated by the staff themselves, they were the first to want to change things. When the people responsible for inefficiencies take ownership of them, it becomes "a win-win situation for everybody", he said.

Salisbury suggested that the main barriers to effective mergers were bureaucracy and the pace of change. However, she added, "the political dimension adds an extra layer of complexity over an already emotionally charged and ­complex situation."

One concern raised by both the speakers and audience was the difference between mergers in the public and private sectors. Varney thought private sector mergers tended to be very well targeted, with the major partner knowing all about the other's business. Public sector mergers, however, operated under a false premise: "In the private sector, most mergers are not between equals. In the public sector there is a belief that mergers are of equals."

This belief, he said, could prove very problematic if it came to, for instance, one university acquiring another and might mean changes to royal charters.

A number of audience members felt it was easier in the private sector to find the money, the experience and the expertise to manage mergers more effectively. In the public sector, there was an added complication that governance had to be transparent.

The importance of understanding the underlying reasons behind mergers was also raised by several speakers and some members of the audience. A hope for merging organisations was that they would be more efficient and effective.

But while increased efficiency and cost-cutting were good business reasons, in the public sector political pressure was often the driver. Creighton pointed out that, when mergers were driven by politics, this could leave management teams with an impossible task. "Sometimes you can rescue that if you go back to the business reasons [and discard the political motive] and go for innovation." However, he said, "the over-riding reason for mergers in the NHS is political imperative."

The cultural differences between merging bodies were also a concern; what Salisbury called unwritten ground rules – or "how we do things round here". These might differ greatly between the organisations, and Varney was sceptical about management's ability to build this culture.

There was general agreement among the speakers that high-quality leadership was essential. What was less clear was whether or not this leadership was available in the public sector. Varney compared the lack of planning for management succession with his experience of working at Shell, where future leadership talent was spotted and monitored over some decades. When it came to HMRC, he had found there was "an absolute dearth of people with leadership capability in terms of monumental change". He felt this also probably applied in, for instance, the Cabinet Office or Treasury.

Taking responsibility

When Salisbury was first given the task of delivering a unitary authority, she also looked for the best people, wanting leaders of the calibre of those who had delivered the Channel tunnel and St Pancras International station. In general, though, she argued that at times of great change what leaders needed to do was to make sure they prioritised, and dealt with things that were "must-dos". For instance, she impressed on staff that IT, contracts and children's services had to be up and running as a matter of urgency.

The issue of how to maintain staff morale through the potentially uncertain circumstances of a merger was also addressed. This was of particular relevance to some members of the audience, who had already been part of organisations that had been drastically restructured; others were unsure about their own jobs.

Varney considered that there was not much point in measuring morale when it was bound to be going down, but he also thought that staff needed to take more responsibility for their own morale and look at the skills they could call on. Legacy issues, such as building costs, involvement of the unions and the financial packages around redundancy, could not be forgotten. Salisbury, however, felt that sometimes the speed of change could leave some people disenfranchised, which wasn't helpful in terms of the democratic process.

Trying to transform the way the public used services was important but, several speakers argued, so far this had not been successful. For instance, Varney cited the government policy that tried to get users of adult social care to manage their own budgets. The aim was to get 1.4 million users involved; the actual number who changed was 15,000, of whom 10,000 were in Oldham.

When individuals did take control the results were very good, he said, but the media backlash was strong and politicians withdrew their support.
There were also issues of timescale and pace of change. Eddy stressed how important it was to put in place robust plans and carefully costed budgets, and then move quickly from analysis to action.

"The right answer is to put incentive packages in place, make sure the senior core team are behind you, move on and make changes. There should be a transfer of power as quickly as possible. The team needs to have both the capacity and capability to respond to the challenge. The inherent risks of reform on this unprecedented scale will need to be grasped firmly to ensure that the huge potential benefits are fully realised."

This is a time of unprecedented change and challenges. Those working in the public sector may, as Salisbury put it, now be experiencing a situation where they feel as if they are "hanging upside down in the dark on a rollercoaster". And as Varney said, "there is an unlimited capability to talk about change, making it happen is much more difficult".

These changes will happen anyway and public sector leaders will have to ensure that, as far as possible, they are for the better.

In focus

This seminar was held to discuss the findings of a report, conducted by the Guardian on behalf of Grant Thornton, on implementing mergers and consolidations across the public sector. At a time when cuts across public services are being made, the panel and the audience – which was
made up of public and third sector senior managers – discussed how these changes could best be carried out. Issues considered ranged from political motives for merging, to quality of public sector leadership, to managing staff morale against a background of uncertainty.

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